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For-Profit College Rule Has Important Weaknesses (and strengths)

Last week the Department of Education released a final rule on gainful employment, a rule that will impose some new limits on career education programs that have poor outcomes for their graduates. The final rule provides some new protections for students in the for–profit education system, but it is also significantly weaker than the draft proposal released by the Administration earlier this year, and still leaves taxpayer dollars flowing to programs that trap students in abusive debt without providing substantial educational outcomes.

For-profit colleges, such as ITT-Tech and Corinthian, are coming under growing federal and public scrutiny for their abusive lending practices and deceptive marketing techniques. In September, the CFPB sued Corinthian Colleges for luring students into taking out private loans to cover expensive tuition by providing them with false and inflated job placement rates, and also for using illegal debt collection practices to collect on those loans. Corinthian is currently in the process of being shut down by the Department of Education, as it runs 25 of the 114 programs with more defaulters than graduates.

Because Corinthian and programs like it depend almost entirely on federal student aid dollars, it is important that the Department of Education ensure at the front end that these dollars are not wasted and do not cause harm. In May, Americans for Financial Reform joined 50 other groups in urging the Administration to strengthen its proposed draft gainful employment regulation, but unfortunately the rule moved in the opposite direction. The new rule fails to provide financial relief for students who enroll in programs that lose eligibility, and lets poorly performing programs continue to enroll students up until they lose eligibility. See comments on the rule from AFR members and allies including TICAS, SEIU, a coalition of Civil and Human Rights groups, CRL and more.

Despite these weaknesses in the new rule, it does provide some new protections for students. In recent years, some for-profit colleges have offered programs that they have said would prepare students for a specific occupation, yet after taking out loans and completing the program, students have found they were unqualified to legally practice that occupation in their state. The new rule protects against programs that do not qualify students to get the certification necessary to practice their intended occupation. However it fails to protect online students, who may still find themselves, upon graduating, not legally qualified to get the licenses they would need to practice in the state in which they live.

The rule also fails to take into account the outcomes of students who withdraw from programs— unfortunately a very large proportion in some schools. The final rule dropped a provision that would have considered the default rates of all program attendees—whether or not they graduated—instead of just the default rates of those who graduated from the program. Instead, the rule considers a student’s debt burden relative to their income after having graduated from the program. Though the Department kept the debt-to-earnings metric strong, not including those who enrolled but didn’t graduate from programs weakens the rule, as many for-profit college students are unable to complete their degrees yet still have debt from having tried.

The new regulations are a modest step forward. As advocates on these issues have made clear though, much more work in this sphere remains to be done to prevent abusive and predatory practices. The Department of Education needs to do more to protect Corinthian students as the school shuts down, and to take on problems facing students in other poorly performing schools and programs.

This blog is maintained by AFR as a forum for ongoing news and commentary about the fight for effective financial reform. Blog posts represent the opinions of their authors / posters, and do not necessarily represent the views of the AFR coalition or coalition members.